When I’ve had enough of working for a living I want to enjoy a worry-free retirement on a nice big passive income. I think the best way of generating this is to invest in a blend of FTSE 100 dividend shares, many of which are now available at bargain prices
I’ve bought all five of the stocks I’ve listed here in recent weeks. I like them so much I’m planning to average down and buy more as the stock market slides.
I’ve made two recent forays into Lloyds Banking Group, on both occasions when its share price dipped below 45p. Today, it trades at 42.4p so I’m sitting on a paper loss, but these are early days.
I’m shopping for dividend shares
Like all the FTSE 100 banks, Lloyds has benefited from rising interest rates, which have allowed it to widen net margins. It has also been hit by fears that higher borrowing costs will lead to a sharp rise in debt impairments. As a result it’s dirt cheap, trading at just 5.8 times earnings.
Lloyds shares are now forecast to yield a whopping 6.6%, handsomely covered 2.7 times by earnings. If I don’t buy at current lows I may well kick myself one day.
I also bought shares in paper and packaging giant Smurfit Kappa Group and wished I’d bought more when its share price fell 10% then quickly recovered. Now I have another chance as the index slides. I think this well managed, profitable company will one day seem a steal at today’s valuation of 8.2 times earnings.
Smurfit currently yields a relatively low 4%. However, this is covered 3.2 times by earnings and I expect progression when the economy recovers. I anticipate solid share price growth too.
I knew I was taking a chance when I bought mining giant Glencore last month. And so it proved, as the share price instantly fell on 10% on bad news from China. It’s even cheaper now at 3.9 times earnings with a forecast yield of 8.8%. Its shares and dividend may suffer if Chinese problems persist and I’ll be waiting for the right time to dig in and buy more.
Low and high yields out there
Turning down the risk dial I also bought defensive dividend growth stock Unilever. It’s been trading at around 23 or 24 times earnings for years, so looks cheap today at 18.3 times earnings. Its well-covered yield of 3.7% is also higher than normal.
My final purchase is an ultra-high-yielder. Wealth manager M&G currently pays a frankly staggering income of 10.48% a year. I’ve pored over recent company statements and its board really does seem committed to maintaining shareholder payouts. Its resolve may be tested if markets continue to fall, as that could hit net inflows and assets under management. But I’m taking a chance it will come through. In fact, I’m planning to buy more. At 9.8 times earnings it’s not dirt cheap, but it’s still cheap.
As with all these stocks, my target minimum holding period is 10 years, and preferably much longer. This will give their share prices plenty of time to recover. It also gives my reinvested dividends time to compound and grow into a generous source of passive income by the time I retire.
